Cash for Clunkers goes...thud

[Bishop Hedd]

Talk about a low bar! By dint of running out of money, the cash for clunkers is a great success... in the same way that welfare or stimulus handouts are successfull when everybody cashes their checks. I bet if we double the subsidy, we'll run out of money even faster, giving the administration a great success to trumpet!

 

 

 

I don't follow your math, but since nobody looked at it I'll take a stab. The program allocated 1 billion for trading in cars with 18 mpg or less. You get $4,500 if the new car is 10 mpg or better. If it is 4 mpg or more better, you get $3,500.

 

Here is the rosiest scenario: everybody trades in for cars which are significantly more fuel efficient (and thus getting the full $4,500). Then 222k cars are traded in. Assume the old ones are driven 7k miles a year and get 15 mpg. Assume the new ones get 30 mpg and are still driven 7k miles a year. Then each driver saves 7k/30 = 233.3 gallons a year. This saves the nation 233.3 x 222k = 51.8 million gallons a year.

 

So in the scenario most favorable to savings you are still off by a factor of two - no great sin for the back of an envelope. But what is going on macro-economically? If gas is $4 a gallon then our one billion dollar investment pays itself off after 1000/51.8*4 = 4.83 years. But if gas is $2 a gallon (a more realistic number over the next five years), it takes 9.66 years to pay for itself. These numbers are not bad, if that's all there was to the investment. But it isn't.

 

Cars are not free to buyers after the rebates are factored in. A new one averages $28,400. Let's assume that these clunkers have a generous trade in value of $3,400 (just to make the math easier). Then average cost of the upgrade becomes $25k. So we are collectively investing 222k x 25k = $5.6 billion dollars, to save 51.8 million gallons of gas a year.

 

For the individual, this deal makes sense: they are investing $20.5k and saving $466-932 a year, an annual return between 2.3-4.5%. Plus, they get a new car out of the deal. With CD rates below 2%, it's a great investment, and we shouldn't be surprised that the eligible are lining up at the trough. But for the nation, this isn't so impressive. Put aside the ethical issue of collectively investing in something whose payoff goes exclusively to the eligible - those fortunate enough to have a clunker. We are investing $5.6 billion dollars to save $116-232 million dollars a year. Our collective investment is earning a return of 2.1-4.2%. Not bad, but not great for a nation who is themselves borrowing to pay for it.

 

Let's look at a much more pessimistic scenario: cars getting 16 mpg, traded in for ones getting 20 mpg, and earning a rebate of $3,500. Then 286k cars participate. Instead of using 7k/16 = 437.5 gallons a year, they use 350. This saves the nation 87.5 x 286k = 25 million gallons a year. Looking at is only as a $1 billion dollar investment, the investment pays for itself in 10 years if gas averages $4 a gallon, and 20 years if it is $2.

 

Let's assume that these more modest 20 mpg cars average $23,900 instead of $28,400, and the trade value is still $3,400. Then an individual is investing 23.9k - 3.4k - 3.5k = $17,000. He uses 87.5 gallons a year less, and saving between $175 and $350. The annual return is 1-2%, on par with a CD - still a good investment. But the nation is spending 286k x (23.9k - 3.4k) = $5.9 billion dollars to save 25 million gallons a year, or $50-100 million dollars. This is an abysmal return of 0.8-1.7%. This return is less than half the interest rate we would have to pay on treasuries issued to cover the subsidies.

 

So - in what sense is this program an economic success? Regardless of whether we are looking at the optimist or pessimist scenario, a ten year treasury issued to cover this program pays about 3.5% in interest, and a twenty year note pays 4.3%. So we are paying more in interest than we are saving in consumption. In what sense is it a good investment for the country?

Valid points. Some on the left aren't happy with the program either.

 

 

http://www.mediastudy.com/articles/av7-30-09.html

[ExiledInIllinois]

I think they (Congress) will try and add another 1 billion...

 

Like somebody said, if they blew through that cash... They blew through it, great! Why not do the program again next year?

[BillsFan-4-Ever]

I heard O said to continue with the program. Anyone else hear that?

[ExiledInIllinois]

I heard O said to continue with the program. Anyone else hear that?

 

 

Ah... Ya, two days ago... Post #43^^^

 

[Chef Jim]

I think they (Congress) will try and add another 1 billion...

 

Like somebody said, if they blew through that cash... They blew through it, great! Why not do the program again next year?

 

Hell, let's do it every year. !@#$ why not every day.

 

a new Matador, a new mastodon,

a Maverick, a Mustang, a Montego,

a Merc Montclair, a Mark IV, a Meteor,

a Mercedes, an MG, or a Malibu,

a Mort Moriarty, a Maserati, a Mac truck,

a Mazda, a new Monza, or a moped, a Winnebago--Hell, a herd of Winnebagos we're giving 'em away,

[ExiledInIllinois]

Hell, let's do it every year. !@#$ why not every day.

 

a new Matador, a new mastodon,

a Maverick, a Mustang, a Montego,

a Merc Montclair, a Mark IV, a Meteor,

a Mercedes, an MG, or a Malibu,

a Mort Moriarty, a Maserati, a Mac truck,

a Mazda, a new Monza, or a moped, a Winnebago--Hell, a herd of Winnebagos we're giving 'em away,

 

 

NO not every day... Every so many years... That way everybody gets into the new car cycle and it keeps flowing. A lot of people will have new cars this year... Now there will be lulls in years to come... Why the swings. Kinda like me opeing the dam down river and then closing it only to open it again because people want more water. You know what is gonna happen to that pool above the dam? The elevations will become unstable and swing wildly causing a chain effect down river.

 

Why not have a PLAN for this program so as to keep people in the new car buying pipeline? Have you seem people whining and crying on TV how this isn't fair because they couldn't get with the program before the money ran out?

[Chef Jim]

NO not every day... Every so many years... That way everybody gets into the new car cycle and it keeps flowing. A lot of people will have new cars this year... Now there will be lulls in years to come... Why the swings. Kinda like me opeing the dam down river and then closing it only to open it again because people want more water. You know what is gonna happen to that pool above the dam? The elevations will become unstable and swing wildly causing a chain effect down river.

 

Why not have a PLAN for this program so as to keep people in the new car buying pipeline? Have you seem people whining and crying on TV how this isn't fair because they couldn't get with the program before the money ran out?

 

So the government needs to dictate when we buy shiit? That's some messed up stuff right there. The cycle should be natural not forced by giving away my money.

[ExiledInIllinois]

So the government needs to dictate when we buy shiit? That's some messed up stuff right there. The cycle should be natural not forced by giving away my money.

 

No. Nice way to mangle things, as usual. It is an incentive program... There is no dictating what and when to buy... Well, at least with me... I don't do things because others are doing it... And I surely don't buy things becasue the gov't tells me I should buy something. If the time is right for your family to buy and the incentive is on, then go for it... If not, who cares... Well at least I don't. I said prior that I wish I still kept my other two cars... I would have made some money off this deal... Oh, well.

 

Wow... People are way too uptight and should be a little more indifferent.

[Chef Jim]

No. Nice way to mangle things, as usual. It is an incentive program... There is no dictating what and when to buy... Well, at least with me... I don't do things because others are doing it... And I surely don't buy things becasue the gov't tells me I should buy something. If the time is right for your family to buy and the incentive is on, then go for it... If not, who cares... Well at least I don't. I said prior that I wish I still kept my other two cars... I would have made some money off this deal... Oh, well.

 

Wow... People are way too uptight and should be a little more indifferent.

 

Why should the incentive come from the government? They're putting their grubbly little fingers into way to much stuff. And most of this has happened in a very short time. Too much, too quickly. And I bet the recession ends (hell it may be over already) before most of this stimulus money even hits. What a cluster !@#$.

[IDBillzFan]

Why should the incentive come from the government? They're putting their grubbly little fingers into way to much stuff. And most of this has happened in a very short time. Too much, too quickly. And I bet the recession ends (hell it may be over already) before most of this stimulus money even hits. What a cluster !@#$.

It's not "stimulus" any more. It's "recovery." Get with the focus groups man. "Stimulus" is soooo January '09.

[PastaJoe]

All these complaints whenever an incentive program benefits the middle class. But this is a drop in the bucket compared to the trickle down policies that gave huge tax breaks to the wealthy and corporations, who still took the money and ran to cheap labor outside the U.S., costing us jobs and slowing the economy. I'm tired of waiting to be trickled down on, it's about time the benefit went directly to the middle class. I wish they would extend this program to major appliances like ovens and refrigerators manufactured in the U.S..

 

Perception plays a big part in economics, and if people see others starting to spend, they will feel more confident in the economy and start to spend themselves, which will draw down inventories, which requires more production, which requires more workers, and the economic engine becomes primed for a recovery.

[DC Tom]

I wish they would extend this program to major appliances like ovens and refrigerators manufactured in the U.S..

 

That would be protectionist, hence illegal under free trade treaties, AND it would piss off Obama's base: namely, the Europeans.

[Magox]

All these complaints whenever an incentive program benefits the middle class. But this is a drop in the bucket compared to the trickle down policies that gave huge tax breaks to the wealthy and corporations, who still took the money and ran to cheap labor outside the U.S., costing us jobs and slowing the economy. I'm tired of waiting to be trickled down on, it's about time the benefit went directly to the middle class. I wish they would extend this program to major appliances like ovens and refrigerators manufactured in the U.S..

 

Perception plays a big part in economics, and if people see others starting to spend, they will feel more confident in the economy and start to spend themselves, which will draw down inventories, which requires more production, which requires more workers, and the economic engine becomes primed for a recovery.

DC Tom said it perfectly. That would be protectionism, and by most economists accounts, that would be a horrible idea, and would encourage other countries to do the same, which of course would hinder our prospects for recovery, specially in the exports sector, all though, it would please many people of his own party.

[PastaJoe]

That would be protectionist, hence illegal under free trade treaties, AND it would piss off Obama's base: namely, the Europeans.

 

Protectionist would be to put a penalty on imports, like other countries do to us. This would be an incentive.

[IDBillzFan]

But this is a drop in the bucket...

Ah, yes. The old "it's a drop in the bucket" comment. A great, time-honored comment. Just got the first black president elected. Can't ever go wrong with "it''s a drop in the bucket."

 

I'm tired of waiting to be trickled down on

Just a suggestion, but maybe instead of sitting there "waiting" for something to trickle down to you, you could get off your ass and meet that money in the middle. But no, why make someone work for it when you can just take it from the high earners and directly hand it to the middle-class, with no incentive whatsoever beyond the understand that as long as you remain mediocre in what you do to earn a living, the government will keep giving you a piece of the pie in exchange for your undying devotion.

[PastaJoe]

Ah, yes. The old "it's a drop in the bucket" comment. A great, time-honored comment. Just got the first black president elected. Can't ever go wrong with "it''s a drop in the bucket."

 

 

Just a suggestion, but maybe instead of sitting there "waiting" for something to trickle down to you, you could get off your ass and meet that money in the middle. But no, why make someone work for it when you can just take it from the high earners and directly hand it to the middle-class, with no incentive whatsoever beyond the understand that as long as you remain mediocre in what you do to earn a living, the government will keep giving you a piece of the pie in exchange for your undying devotion.

 

Dude, you're F'd in the head. Talking about economics and you feel compelled to remind us we have a black president. What's next with you, he's a Muslim who was born outside the U.S.?

 

And that's also MY tax money that had to compensate for the tax breaks that the wealthy and corporations got, who still decided to close the plant I worked at for over 20 years and move it to China because of cheaper labor and lax regulations. The fallacy of trickle down policy has been exposed, it doesn't save or create U.S. jobs. If you took your lips off the ass of wealthy and corporate welfare you'd see the big picture.

[DC Tom]

Protectionist would be to put a penalty on imports, like other countries do to us. This would be an incentive.

 

The "buy American" clause in the stimulus bill was considered protectionist...

[IDBillzFan]

Dude, you're F'd in the head. Talking about economics and you feel compelled to remind us we have a black president. What's next with you, he's a Muslim who was born outside the U.S.?

 

And that's also MY tax money that had to compensate for the tax breaks that the wealthy and corporations got, who still decided to close the plant I worked at for over 20 years and move it to China because of cheaper labor and lax regulations. The fallacy of trickle down policy has been exposed, it doesn't save or create U.S. jobs. If you took your lips off the ass of wealthy and corporate welfare you'd see the big picture.

What I am reading is a person who is looking to blame everyone else for his lot in life. "If it weren't for this, I wouldn't have lost my job. If it weren't for that, I wouldn't have had (fill in the blank) happen to me. I'm tired of waiting for my ship to come in. What about me?" You sound like Sally bitching that she missed Halloween because she spent it with Linus waiting for the Great Pumpkin. I got bad news, Sally: no one MADE you sit in the pumpkin patch but yourself.

 

It's amazing to me you can get anything done at work with all that whining going on your head.

[Kelly the Dog]

Ah, yes. The old "it's a drop in the bucket" comment. A great, time-honored comment. Just got the first black president elected. Can't ever go wrong with "it''s a drop in the bucket."

It's not extra money they are asking for, the 2 billion is already allocated in the stimulus package. They would just move it from one place already designed for transportation purposes to the Cash For Clunkers program instead.

 

Now, back to your regularly scheduled rant, feel free to go on a cut-and-paste tirade about the stimulus package.

[Chef Jim]

All these complaints whenever an incentive program benefits the middle class. But this is a drop in the bucket compared to the trickle down policies that gave huge tax breaks to the wealthy and corporations, who still took the money and ran to cheap labor outside the U.S., costing us jobs and slowing the economy. I'm tired of waiting to be trickled down on, it's about time the benefit went directly to the middle class. I wish they would extend this program to major appliances like ovens and refrigerators manufactured in the U.S..

 

Perception plays a big part in economics, and if people see others starting to spend, they will feel more confident in the economy and start to spend themselves, which will draw down inventories, which requires more production, which requires more workers, and the economic engine becomes primed for a recovery.

 

The problem I have with it is I'm not sure how much thought went into it....again. What is the true benefit? Why just cars, why not cash for washers and dryers? And what we're doing is taking a car from a middle class person that is a) probably paid for b) has very low registration c) very low insurance and giving that middle class person a car payment, increasing their registration and insurance. And the middle class? From what I've heard is that many of the people taking advantage of this are in fact not middle class.